The modernization of macroeconomic policy

“It is crucially important on a step-by-step basis by
2050 provide the solution of the following problems:

First of all, the macroeconomic policy of state should
be modernized…”

The new state needs the new financial policy, able to become a base for
significant qualitative steps in the country socio-economic development. Therefore the Head of state has specified the modernization
of a macroeconomic policy, and more precisely its financial component, as the absolute
priority. Herewith the “comprehensive economic pragmatism on the principles of
profitability, repayment… and competitive ability” lies at the root of all the
economic background assumptions of the President N.A.Nazarbayev [The strategy
-2050].

In essence, the President has detached the primary positions of a New
financial policy.Under the
scientific rationale it is possible to mark the following principles:

1.The principle of
purposefulness – reinforces the provision,
according to which all the financial costs should have the subject-purposive
appointment.

2. The principle of financial
system adaptation to the alternating conditions. The implementation of a given
principle in practice supposes the continuous monitoring of a market and
macroeconomic situation, designated to the tracking of all significant factors
influence on the dynamic of a highly industrial economy development.

3.The principle of information and
analytical support of a finance and investment activity. The necessity of the
given principle application is conditioned on the high uncertainty both the
funding recipients behavior and its performance environment in whole. The information
support is the most important element of the national economy funding process.

4.The principle of efficiency.
When the taking of financial decisions is carried out on basis of a transparent
progress evaluation with regard to objectives, as well as the effective
accumulation of governmental financial resources, whereby the tax burden does
not bear pressure upon the innovative activity of business entities.

5.The principle of planning and
forecasting. The planning and forecasting as the essential elements of any
activity management system, very significant in the questions of financial
security of a highly industrial development of national economy.

6. The principle of confidence
building sideways the population. The give principle, in our opinion, is especially
notional, since for the impactful attraction of internal and external resources
as the sources of investment projects it is necessary to create the conditions of confidence to the financial system and the
policy carried out by the state in the given area.

In the Strategy-2050 the President has specified that for the economy, which
is affected enough by the world market, it is of critical importance to
preserve stability in the periods of fluctuations for as long as the specified
enterprise proportions will be achieved. The President notes: “The global economic system can miss
the mark already in 2013 – 2014,
in particular to cause the slump of world prices for raw
materials. The similar scenario is extremely undesirable for us” [The strategy -2050].

In this regard, the questions of economic processes forecasting are of
the utmost interest. Since the Kazakhstani budget is considerably oil-linked, according
to the President’s opinion, we need to concentrate on the long-term forecasting
and planning pf macroeconomic processes, including the budgetary costs and
receipts, resources reservation, inflation expectations, drawing potential, debt
obligations, etc.

Thus, in the area of monetary policy the President N.A.Nazarbayev as the
primary task has detached the problem of inflation rate growth. Substantially, over
the last years the inflation exerts the sufficient serious affection to the
dynamics of credit interest rates. This linkage is reflected in the Letter and detached
as the principal directions of a monetary policy of the future.

In this regard the President says about the maximum coordinating of the
Government work on price control on one side, and the National bank activity on
the application of money and credit and monetary policy measures in order to restrain
the inflation. In this case the Government and National bank need to “knock down”
the population’s trust by holding or strengthening of a national currency, and
the Government – by the ceiling in price, perhaps even by the administrative
methods.

The question of population’s trust to the regulatory structures, in
that case the National bank and Government has not a insignificant meaning. Under
the condition of defined limits of inflation and currency rates fixation by the
National bank and the high degree of the population’s confidence it can be
assumed that there will be no sharp turnabout in prices. At that the National bank
will apply the maximum possible instruments of money and credit and monetary
control for the curbing of exchange fluctuations and inflationary volatility. In
case of absence or the low degree of confidence on the part of population, it
can turn to be a challenging task to preserve the parameters determined by the
National bank.

Generally, such variable as a degree of confidence to the central bank and
government is used as one of the basic coefficients in various mathematical
models of inflation targeting, considered in the scientific papers of IMF and
it shouldn’t be neglected during the carrying out of anti-inflationary policy. Therefore
we think that it needs to provide the population’s confidence to the regulator
by virtue of bigger publicity and transparency of its activity. The practice of disclosure by the National
bank of information about its activity perhaps requires the improvement.

The carrying out of competent and circumspect budgetary policy is
very significant point in the President’s Letter.

It should be pointed out that in consequence of purposive actions in the
area of budgetary policy over the last years it was proved successful to solve
the range of significant problems. The undertaken social obligations of state
are abided and satisfied. The National Fund establishment has allowed passing
the period of a global recession without the fall of citizens’ living standards,
support the financial infrastructure and real sector of economy. The prudent
budgetary policy became the essential factor of sustainable development of our
country.

However nevertheless in conditions of a continuing global financial and
economic crisis the President’s appeal to arm with the new principle of
budgetary policy, i.e. to spend only within one’s opportunities and shorten the
budget till the maximum possible lower limit is of utmost importance.

Thus, the results of native scientists’ investigations
bear the evidence of a necessity for the rational use of budgetary funds,
securing of its effectiveness.

In other words, the given appeal, in our opinion, is a reflection of
modern challenging needs of the whole world community, and ours in particular. In
this context, to our opinion, the citizens of republic should with profound
responsibility conceive and support the given initiative stated by the Head of
state.

In turn, we, as the scientists are fully supportive of
the course of realization of the budgetary expenses effectiveness potential
increase.

In our opinion, the principal objectives of a
budgetary policy to the middle-term and long-term perspective should become:

- the strengthening of macroeconomic stability and
securing of budgetary stability;

- elaboration of a long-term budget strategy;

- determination of the pension system development
parameters;

- the creation of conditions for the rendering of high
quality public services;

- providing of transparency and openness of budgetary
process.

The President has accurately posed a question on the need to the public
budget orientation to the productive from the standpoint of a long-term outlook
nationwide projects, such
as, for example, the economy diversification and development of infrastructure.

Also it is correctly noticed that the need of the most scrutinous
justified election of objects for the investments has drawn to a head.

Seeing that often the effectiveness of realized budget expenditures is low,
received socioeconomic impact is disproportionate to the volume of discharged
funds on one or another goal. Therefore, it is particularly important to
mention that the projects accomplished on the budgetary funds should in the
first instance solve the real-world problems of citizens and bring income to
the country treasury.

Taking into account that in the near term the hard constraints connected
with the adversity in the world economy will have effect, the work on
elaboration of distinct priorities of budget expenditures is necessary.

To our opinion, the budgetary expenditure patterns should be changed in
favor of those items, which are directed to the education, science and
infrastructure.

The instruments budgetary policy
should be focused on the contrariety to the factors of unsteadiness, high rate
of inflation and budgetary deficit. The improvement of entrepreneurial and
investment climate is impossible otherwise.

Such instrument as a “transparency” became of prime importance and at
the provision of pragmatism for the budgetary process, whereof it is said in
the Strategy. Only the transparence can make the budget expenditures maximally
effective.

In this regard the different international financial institutes have repeatedly
opined on the necessity of the supreme audit institutions status rise. It is necessary
not only for the carrying out of estimation of the budgetary funds expenditure
efficiency, but also for the determination of the economic development
condition through the activity of subjects, which are the large taxpayers, directly
affecting the state income basis. This is precisely why today the demand of action
measures, focused on the real strengthening of financial control bodies
becomes increasingly evident.

The base of economic policy of the President N.A.Nazarbayev is the longtermness,
since the “2050 is not a simple symbolic
date. It is a real term, whereon the world community orientate itself today" [The strategy -2050]. The real Strategy implementation
is possible only at the three basic elements aggregate: pragmatism (whereat all
strategic line of the President is based), planning and forecasting.

The long-term budgetary projects in the foreign countries,
covering the period from 15 to 50 and even for 75 years, contain the principal
background assumptions for the determination of a stable development path of
the public services and income redistribution sphere.

The need of a long-term
planning is driven by the consolidation of the budget ‘s role as a public
policy instrument for the purposes of achievement of desired goals on the
formation of a high industrial economy, wherein the centerpiece is occupied by
the human capital. It grows up in respect of a socioeconomic development adverse
trends presence: ageing of population, ecological problems, high degree of
economy and budget dependence from the base material sector and external
conjuncture, preservation of terrorism danger. Under the circumstances the demand
for public services and relevant government expenditures increases, what creates
a threat for the country financial soundness. At that the complex solution of the
following problems should be provided: funding of current projects and investment
programs, fulfillment of the middle-term and long-term development programs, financial
deepening, improvement of investment, innovative and entrepreneurial climate
and others.

In such a manner, the long-term bottom-line financial planning as a component part of macroeconomic
processes management will become a basis for the new social model of Kazakhstan formation.

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